Stage-dependent intellectual property rights

a r t i c l e i n f o Inspired by the Chinese experience, we develop a Schumpeterian growth model of distance to frontier in which economic growth in the developing country is driven by domestic innovation as well as imitation and transfer of foreign technologies through foreign direct investment. We show that optimal intellectual property rights (IPR) protection is stage-dependent. At an early stage of development, the country implements weak IPR protection to facilitate imitation. At a later stage of development, the country implements strong IPR protection to encourage domestic innovation. Therefore, the growth-maximizing and welfare-maximizing levels of patent strength increase as the country evolves towards the world technology frontier, and this dynamic pattern is consistent with the actual evolution of patent strength in China. " China and others are entering the tricky middle-income stage of development in which the big advances from absorbing rich-world technology start to run out. " The Economist (2011) 1. Introduction In the late 1970's and early 1980's, the implementation of a modern intellectual property rights (IPR) system in China was subject to intense debates. 1 Proponents including Deng Xiaopeng, the paramount leader of China at that time, saw the creation of a modern IPR system in China as a necessary means to attract foreign direct investment (FDI) and to provide incentives for domestic innovation. In 1982, the first intellectual property law under the leadership of Deng was drafted in China. Then, through a series of policy reforms, the strength of patent rights in China increased over time. For example, the Ginarte–Park index of patent rights in China gradually increased from 1. the statutory term of patent in China was lengthened from 15 years to 20 years. 3 Then, in compliance with the TRIPS agreement, 4 China reformed its patent system again in 2000. 5 Recently, the Third Amendment to the Chinese Patent Law was approved in December 2008 and came into effect in October 2009 with the objective of building China into an innovative country with well-protected IPR by 2020. 6 Following these patent reforms, research and development (R&D) as a percentage of gross domestic product (GDP) in China increased from 0. ☆ We are very grateful to the anonymous referees and Patrick Francois (the Editor) for their insightful comments that have improved the manuscript significantly. We also would like to thank Mainz for their helpful suggestions. The usual disclaimer applies. …